Megafon Buys 50 Percent Stake in Euroset

on Dec 7, 2012

Megafon (LI:MFON), the Russian mobile operator which successfully floated on the London Stock Exchange on 28 November, announced today it has completed a $1.07 billion (£668 million) acquisition of a stake in cellphone retailer Euroset for the purpose of expanding the number of stores in which it sells its services.

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**The Deal**
According to the Financial Times the purchase was surrounded by a number of technicalities as the stake was bought jointly by Megafon and Alisher Usmanov’s offshore vehicle Garsdale Services Investment.
Billionaire Alexander Masmut sold his share for $1.07 billion (£668 million) and may receive $100 million (£62 million) more if Euroset meets certain targets in the first half of the next year. The 25 percent acquired by Mr Usmanov will be bought out by Megafon in about a year for $535 million (£334 million) plus 8 percent annual interest. The press release also points out the second transaction could be postponed for an additional two years if necessary. The purchase valued Euroset at $2.3 billion (£1.44 billion) including net debt – a smaller figure than the $3 billion (£1.87 billion) valuation the retailer sought when in April 2011 it unsuccessfully tried to list itself on the London Stock Exchange.

The FT reported that Euroset will now be owned jointly by the second and third largest mobile operators in Russia – Megafon and VimpelCom. Megafon, which currently has 3,750 shops and franchisee shops, will get access to an additional 5,500 stores in Russia and Belarus thanks to the acquisition. The mobile operator said the investment in Euroset is “instrumental in further enhancing the quality of its subscriber base and in helping to reduce churn.”

VimpelCom also increased its stake in Euroset from 49.9 percent to 50.0 in order to be on equal grounds with its competitor. “Euroset is a strategic partner for VimpelCom and a major distribution and customer service channel. This transaction is the next step in the process of building a more efficient and sustainable operational model between VimpelCom and the largest telecom retailer in Russia, which will help us to provide better service to our customers,” said Chief Executive Anton Kudryashov as quoted by MarketWatch.

On November 28 Megafon raised $1.7 billion (£1.06 billion) from its initial public offering in London with shares priced at $20 – the bottom of the $20-$25 range previously considered. The stock appreciated in a week of trading and reached a peak today at $22.010. As of 13.50 GMT the share price has dropped 0.36 percent from its Thursday close to $21.880.

**Lord Myners Defends Megafon**
!m[](/uploads/story/989/thumbs/pic1_inline.png)In an interview with The Sunday Telegraph Lord Myners, former City minister who is a non-executive director at Megafon, hit back at criticism over corporate governance concerns surrounding the mobile operator, saying the London market should be careful not to adopt an “arrogant stance” against overseas listings.
With Goldman Sachs backing away from leading Megafon’s IPO and the UK Listings Authority taking three weeks more than usual to give its approval of the floatation, investors became wary of the possible underlying risks of the stock. Their concerns were exacerbated by a number of recent failed listings from former Soviet countries and suggestions of links between Mr Usmanov and criminal organisations in Russia.
Lord Myners stood behind Megafon saying that not all overseas listings are alike. I will “work my socks off to ensure that MegaFon delivers” he told The Sunday Telegraph.


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